The Difference Between GNP and GDP, Essay Example

There is a difference between gross national product, GNP and gross domestic products, GDP some countries it is trivial, some are significant. “The difference between GNP and GDP lies in the treatment of income from foreign sources. GNP measures the value of goods and services produced by U.S. nationals, while GDP measures the value of goods and services produced within the boundaries of the U.S.” (The Difference Between GNP and GDP, 2012)

According to the Penn World Tables, there are some countries that have a significant difference between their GNP and GDP. According to the Penn World Tables, the following ratios of GNP to GDP for 2007 indicate:

(Penn World Tables 6.3, 2012)

The ratio in the United States is close to 100% meaning that for developed countries the gross national product and the gross domestic products are approximately equal. Taiwan has an excess of 2.63% GDP, meaning that there is a good amount of production facilities owned by foreign companies. Honduras, Iceland, Thailand, and Turkey show the gross domestic products are around -5%. The GDP shows the value of goods produced within the nation’s border. Iraq has the largest difference from the United States with a variance of -35.81%. Gross domestic product is determined by the base of the price by which the output was produced. The larger positive numbers reflect the presence of foreign production within the countries. The smaller, negative numbers are the production within that country.

There are other factors to consider when considering gross national product and gross domestic products. When computing GPD the following needs to be included:

GDP = Compensation of employees + Rent + Interest + Proprietor’s Income + Corporate Profits + Indirect business taxes + Depreciation + Net foreign factor income

The owners have to consider payments to the foreign owners of capital goods and labor services as well. Every type of market exchange can be viewed as a two-way process. Money is traded for goods and sellers trade goods for money. The overall cost of capital goods and labor services, as well as the overall value of production is determined essentially by the buyer and seller in the market exchange.

Compare tourism spending in the United States in 1985, 1995, and 2005. Graph the trade-weighted value of the dollar versus the U.S. balance of trade for travel revenue.

(US Department of Commerce Bureau of Economic Development, 2012)

The regression analysis shows the trade-weighted value of the dollar as an independent variable and the travel revenue as the dependent variable.

Graph the trade-weighted value of the dollar versus exports, imports, and the current account for 1973-2007.

References

The Difference Between GNP and GDP. (2012) Retrieved from http://www.cals.ncsu.edu/course/are012/readings/gdp&lead.html

Penn World Tables 6.3. (2012) Retrieved from http://datacentre.chass.utoronto.ca/cgi-bin/pwt63/retrievePWT63.cgi

Trade Weighted U.S. Dollar Index: Major Currencies. (2012) Retrieved from http://research.stlouisfed.org/fred/data/exchange/twexmmth

US Department of Commerce Bureau of Economic Development. (2012) Retrieved from http://www.bea.gov/international/index.htm#bop